Will Trump influence the Fed's decision?

07/30/2018

The next meeting of the Federal Reserve System will take place already this week. A special intrigue lies in the fact that the decision will be made against the background of criticism of the country's President Donald Trump.

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Experts are not waiting for a change in the monetary policy. Following the meeting, which will be held on Tuesday and Wednesday in Washington, no increase in the cost of borrowing is expected, as evidenced by futures for the federal funding rate, and forecasts of 56 of the 57 economists surveyed by Bloomberg.

But it would be a mistake to associate a pause in raising rates with Trump's complaints about the Fed's intention to gradually tighten up policies that have disrupted the more than twenty-year tradition of the White House to avoid such comments out of respect for the independence of the US central bank.

"The recent pressure from the president has no effect" on how they react to the data, Priya Misra, head of the global interest rate strategy at TD Securities USA in New York, told Bloomberg. "Ultimately, they will do what is right for the economy," she noted.

Recent economic data showed that the need to urgently raise the rate is absent after tightening in March and June. In addition, there is no planned press conference after this meeting, and the Fed has never taken any steps in the meetings without post-briefing.

Members of the Fed insist that there is a real discussion at each meeting, but investors are unshakable. Chairman Jerome Powell, who will hold a press conference after each meeting in January, will face journalists next time after the meeting of the Federal Open Market Committee (FOMC) on September 25-26. Investors estimate the chances of a third rate increase in September in September at 80%, compared to about 1% this week, notes Bloomberg.

Powell's speech in the US Congress on July 17-18 also did not signal that the economy was overheating or justified an early rate hike. "The FOMC believes that so far the best direction for further action is a gradual increase in the federal funding rate," Powell told US lawmakers.